Abstract
An organization’s ability to survive and grow is based on advantages that stem from core competencies. In the longer run the only source for being ahead of competitors is to learn faster than its competition. The climate of openness is a facilitating factor to create new knowledge continuously that will be required to meet the future competitive environmental changes. The notion of flexibility in strategic management is highly relevant as it is important for surviving in present economic scenario of globalization and liberalization. Strategic flexibility provides a congenial environment for the development of core competence and plays a pivotal role to define where an organization must excel in order to maintain leadership. The organizational core competence provides basis for generating sustainable competitive advantage, which in turn leads to corporate success. The long-range strategies must address the present and future needs of the customers. The case studies of two pharmaceutical organizations have been developed to find out the issues related to core competence development, organizational learning, strategy formulation with core competence, and role of flexibility in strategy formulation. The study is based on Flexible Systems Methodology and has been conducted through interviews. The case studies highlight that organizations need new strategic imperative stressing on nurturing core competencies which form the foundation of a sustainable competitive advantage. The less imitable the core competencies, the more they become the factors responsible for corporate success, and greater is the economic return.

Introduction
In view of the globalization of trade and liberalization of economies, all organizations are trying their level best to gear themselves up for the competition. Any organization that aims at capturing a disproportionate share of profits from tomorrow’s market needs to build its competencies. The core competence helps in providing added customer value, competitor differentiation and extendibility. The area of core competence is emerging, and it needs a lot of attention in order to describe the capabilities that may be responsible for leadership in a range of products or services. Core competence is part of a collective knowledge gain in the organization. It is a process of imparting information, harmonizing streams of technologies and involvement of people from all functions. It is the latest paradigm of strategy. There has been a shift of paradigms in various disciplines and strategy has also moved from the trend of competing for the product leadership to the recent trend of competing for core competence leadership. At top management level, the core competence has to be a primary factor for strategy formulation as it is an important source of profitability. The above average returns can be delivered only from assets and skills that are hard to imitate. These skills need to be developed overtime as they make organizations immune to competition through investment and information exchange by the organizations human capital. The management must peep inside their organizations for precious, unique and costly to imitate

resources, and then exploit these resources to create an edge over its competitors. This research paper analyses the processes that lead to core competence development, generation of sustainable competitive advantage, profitability and growth of three pharmaceutical organizations. The Situation–Actor-Process– Learning–Action-Performance (SAP-LAP) paradigm has been used to analyze the cases and learning issues are synthesized. The main aim of the study is to identify the strategy formulation practices in these organizations with the help of core competence and flexibility perspective.

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9. Do management flexibilities resonate with process flexibilities? 10. How does top management encourage the development of core competence in the organization?

attributes: history of the organizations, human resources, sales and marketing functions, in-house R&D, financial performance, core competence, global tie-ups, flexibility, globalization, processes leading to generate competitive advantage, technology absorption and implementation processes, core competence development process etc. The SAP-LAP analysis was used to have know-how about the core competence function in the organizations. In each case the context of situation has been identified. The current situation of the organization and the operating environment has also been described. The capabilities of the main actors involved have also been covered. The various learning issues have been brought out, possible actions have been suggested, and expected performance has been envisaged.

Processes
1. How is corporate performance related to the strategic and operational change? 2. Does the process of globalization lead to corporate success? 3. To what extent do the coordinated actions of all functions lead to competitive edge / advantage? 4. How does economies of scale contribute towards the generation of competitive advantage in your organization? 5. How is product differentiation created so far as your organization is concerned? 6. Does the assistance from technology providers make the absorption and implementation of new technology easier? 7. How is the collective learning responsible for developing core competence? 8. What are the dominating processes that lead to development of skills in your organization? 9. How does your in-house technology development contribute towards core competence? 10. What are the various organizational processes that help in developing your organizational core competence?

Exhibit 1: SAP-LAP Model of Inquiry Situation
1. How does the accurate business environmental assessment help in improving corporate performance? 2. Is your improved corporate performance a result of your diversification? 3. How does your organizational flexibility help in diversification? 4. In what way does diversification aids in the growth of the organization?

The capabilities exhibited by the management to develop the core competencies include corporate strategic planning, strategic alliances, huge investments in R&D and training and development.

5. How does the capacity utilization contribute towards the competitive advantage? 6. What relevance has customer value got with the product differentiation in your organization? 7. How is consistency and effective time factor responsible for generating competitive advantage? 8. Is cost advantage a main factor for deriving a sustainable competitive advantage in your organization? 9. How does customer consciousness help in technology assimilation? 10. How does the technology leadership help in developing core competence? 11. What are the major guidelines for hiring the key people in your organization?

11. How is competence at the level of people developed / created in your organization?

2. What are the key issues related to the processes? -Link between strategic and operational change -Coordinated actions of all functions -In-house technology development -Competence at the level of people lobalization Collective learning Organizational processes Development of skills

Actor
1. What are your main organizational core competencies? 2. Does your organization have tie-ups with global companies? 3. Does it believe in diversification? 4. Has it got faith in its in-house R&D? 5. What capabilities are exhibited by the management to develop core competencies? 6. In what domains freedom of choice is available to the managers? 7. Has the concept of core competence been communicated properly to people in the organization? 8. Are management flexibilities resonating with situation flexibilities?

3. What is your understanding about the core competence of the organization? 4. What are the potentials to develop the core competence in your organization? 5. What is the existing strategy formulation pattern?

Enhance scientific innovation Optimize the launch of its newer products Grow operating income by increasing sales and restraining costs

Action
1. What should be done to improve the situation? 2. What ought to be done to improve / implement the processes?

The goal of the company is to create an innovation engine that is open to the world. It has identified the best sources of learning, tries to improve everything it does and seeks innovation wherever it is available. It is a research and 4. What role does your organizational core competence play in development organization capable of consistently and staying ahead of the competitor? rapidly discovering and developing truly innovative 5. How does your organization achieve corporate success with the medicines. Its current pipeline help of a sustainable and growing portfolio show competitive advantage? The customer value is of greater importance as some of the progress it is Performance it forms the basis for the continual search for making. The different innovation through the creative combination of divisions of the company are 1. What are the key performance indicators? scientific discovery and the application of Lilly Research Laboratories, Elanco Animal Health and information technology. 2. What is the impact of your Health Systems Division.
3. How to initiate a process that leads towards the core competence development? performance on the situation? 3. How will the performance of the processes be effected? 4. How is core competence affecting key performance indicators in your organization? 5. How to look ahead of the competition?

Lilly’s Mission and Values
Mission
To provide innovative pharmaceutical-based solutions for the unmet medical needs of the customers around the globe To expect nothing less than restoring Lilly to the top level of the pharmaceutical industry in growing shareholder value

Case of Eli Lilly and Company- Outgrow CompetitionThrough Constant Innovation
Background Eli Lilly and Company is a global, high technology company founded by Colonel Eli Lilly in 1876 in Indianapolis, in the Midwestern section of United States. The company is a research based Pharmaceutical Corporation dedicated to creating and delivering innovative pharmaceutical based health care solutions that enable people to live longer, healthier and more active lives. Through its internal scientific programs and dozens of research based partnerships worldwide, it is targeting solutions for many of the world’s most urgent, unmet medical needs. Its deep research and clinical expertise has prepared it to take advantage of this golden age of discovery in the life sciences on behalf of patients who are dependent on medical innovation. Lilly is focusing on the discovery and development of the most effective pharmaceutical based health care solutions for its diverse customers throughout the world. It is dramatically accelerating its drug discovery and development processes and, thus, the speed at which its new products achieve regulatory approval and reach patients. As the central effort of this company is to provide customers with the best clinical and economic outcomes, it seeks constant innovation through the creative combination of scientific discovery and the application of information technology. This continual search for innovation underpins its efforts not only in the laboratory but also throughout the entire Lilly organization. The employees of the organization stay focused on the following priorities:

Values
Respect for people, that includes its concern for the interests of all the people worldwide who touch or are touched by Lilly, i.e., customers, employees, shareholders, partners and communities Integrity that embraces the very highest standards of honesty, ethical behavior and exemplary moral character Excellence that is reflected in its continuous search for new ways to improve the performance of its business in order to become the best at what it delivers

the company has made a substantial commitment to the preservation of women’s health. at regular intervals of time. The newer products have been the keys to its performance.50 54.03
Research and Development
Eli Lilly and Company has been at the forefront of many of the most significant breakthroughs in modern medicine.5
Table 2: Table of Financial Ratios for Eli Lilly & Company
Ratios 2001-02 Net Profit Ratio Rate of return on fixed assets Rate of return on total assets Rate of return on capital employed Rate of return on shareholders’ Equity D/P Ratio 24. build critical mass in those research and development markets where its innovation expenditures in support of the would be most welcome. transactions that include 11% create new competitive space to stake its The biggest challenge is to increase in world wide capabilities out ahead of the competition. Its new goal is to go from identifying a lead compound to introducing an innovative product in two-thirds of the world market in 3. Lilly Research Laboratories has completed a major effort to restructure its discovery and development functions so as to promote and enhance the sense of innovation.
Sales and Marketing
Eli Lilly and Company is a global pharmaceutical corporation with its market presence in 161 countries.56 0. unmet medical needs that are expected to be completed by Table 1: Turnover of Eli Lilly and Company 2005. If the company is organization’s performance for enable the organization to pour its growing to achieve growth. The The core competence development processes globalize. and the success story is not merely how many products it has launched but how it has launched them.34 21.08 61. Its actions and behavior demonstrate its respect for each other and each other’s contributions. Japan.27 0. Lilly has launched five major products in a span of three years. Research and development facilities are located in Australia.62 39.65 50. i.33 16.03 27. 2000-2001 10862. Through its research programs.04 Fiscal year* 2000-01 99-2000 28.4
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Therefore.81 39.000 days to 500 days for discovery plus 2500 days for development and regulatory approval.
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. enables the organization to have a Year Turnover (Dollars in millions) competitive edge in the market. The company’s philosophy is to pursue innovative science and technology from external as well as internal sources. It has acquired information resources and capabilities beyond most Financial Performance of its competitors. The company has undertaken a broadscale effort to redefine its approach to marketing and sales The performance of Eli Lilly & Company has been in order to ensure its lead in the marketplace of the future.13 0. Each employee is personally responsible and accountable for ensuring that his/her actions and behavior reflect the diversity policy. investing in new research technologies and expanding its research team.
The company respects its employees and all people worldwide who are touched by the company. as A subset of this approach is shown in Table 2 for the said the ongoing effort to years are quite high. The late stage pipeline includes Company for last three years presented in Table1. The flow of the constant stream of innovation..e. The turnover of Eli Lilly and company’s strong pipeline. Innovation has been the driving force that contributed to the upward climb of the company.91 31.9 profitability is high but the organization is focusing more on growth as compared to profitability. Belgium. The R&D of the company has an objective to reduce key steps that have historically taken five years or more down to 500 days.2
2001-2002 11542. and United States.
* Annual Reports of Eli Lilly and Company. Lilly’s internal research efforts are focused on five therapeutic areas: neuroscience. Spain. satisfactory for last three years. to develop and utilize the diverse talents and energies of all the employees worldwide. England. lending their voluntary support to programs that enrich the quality of life and opportunities for all citizens. The growth as well as 1999-2000 10002.20 68. Singapore. infectious diseases. up to 10 potential new products for a wide range of serious.21 20. it must 2001-2002 reflect the impact tap the huge potential of of several significant stream of innovation into the global market and markets around the world.15 73. Germany. oncology and cardiovascular diseases. based on global operations
SAP – LAP Analysis
Situation
Eli Lilly and Company is dedicated to the discovery and development of products of the highest quality that improves the health and well being of people around the world.21 36. endocrinology. The people are encouraged to become involved in their communities. The financial ratios. an important and expanding aspect of Lilly’s research and development strategy is in the area of alliances and partnerships. Canada. The company is strengthening its ability to identify high potential drug candidates by improving its research and development processes.

Collaborating with partners to produce the medical innovations that customers want strengthens the internal expertise. it seeks to use its expertise in disease management and integrated care to link all the participants in the healthcare chain. Lilly is a leader in researching and developing superior The process of globalization is initiated with an idea. The organization’s core competence in R&D and marketing plays an important role in introducing new products.
within the organization and in particular between groups. It has got core only to bring Lilly to the world but also to bring the world competence in the area of research and development that into the Lilly.S. Processes leading towards competitive advantage treating and curing diseases. payers. Lilly makes full use of all promising technological advances that include the process The products of Elli Lilly and company address the unmet of exploring strategic partnerships with academic research needs. It believes that the best approach to treatment is to consider the whole patient and to use combination of interventions and therapies to produce optimal clinical and economic results. functions and geographical locations. acquiring high potential drug candidates and help the customers to get the maximum benefits from its products. Lilly encourages a process of transition from traditionally component-based health care to a comprehensive integrated approach to health care delivery. With newly available information technology.. The process of innovation is the driving force by which a new thing gets adopted. and payers. This It has 10 out of 19 members of operations committee who continued excellence hinges on its ability to utilize the do not belong to U. new media and new applications of information technology to restore order in this new world.
Processes
Process of globalization
The focus of the company’s business is to enlarge its competitive capabilities and truly globalize its operations. The various organizational processes that help in developing organizational core competence are: Timely Introduction of New Products and Other Technologies (TINPOT) Creative Employee Suggestion Schemes (CESS)
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. flexibility technologies hold the key for on board in key management has great power to illuminate the path of its researchers to unlock a better understanding of and technical positions excellence and success. and bring to market several important new products quite ahead of the competitors. complex disease processes and throughout the organization. As Lilly is a research based pharmaceutical company. implemented and finally chosen by customers to replace whatever they are using currently. unmet medical needs. pharmacists.6
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generating competitive advantage as the organization is quite ahead of the competitors so far as introduction of new products is concerned. It has strengthened its roaster in other promising technological ways as well by recruiting a The new number of world class leaders Despite the climate of turmoil and rapid advances. the discovery of new products contributes to the upward climb of the organization. thereby institutions and biotechnology firms. The whole process providing significant economic benefits for patients. The time factor and consistency is responsible for The assistance from technology providers makes the absorption and implementation of new technology easier. they also often reduce the cost of medicine. in every place where it operates. physicians. nothing has been as impressive as the reawakening of the spirit of its people. not pharmaceutical health care solutions.
Processes leading towards core competence development
Lilly’s research and development efforts target health solutions that address urgent. enables it to address the unmet needs of the customers. In keeping with its commitment to provide customers with effective results and lower costs. replace more expensive and invasive medical treatment. In every part of the organization. The differentiation is created by means of perceived value through services. facilitates its application of new technologies in the drug providers. The customer value is of greater importance as it forms the basis for the continual search for innovation through the creative combination of scientific discovery and the application of information technology.e. particularly at its senior management ranks. With the help of technological advances. providers and patients. The employees have the confidence that they can control their own destination and the destiny of the shared enterprise. The company has adapted to new channels. The coordinated actions of all the functions in the company lead to the generation of competitive advantage. True globalization involves building a Technology absorption and implementation process perspective that transcends the limitations of nationality. The expanding breadth of the scientific reach combined with formidable marketing capabilities is responsible for citing Lilly as a leader both in accelerating discovery and speeding innovative new products to patients. i. The company focuses its collective discovery path and helps in progressing beyond incremental energies on validating the potential of its products in the improvements. This patient focused and process oriented approach offers the best health care at the most affordable cost. to develop new therapeutic approaches aimed at preventing. it keeps on creating and delivering innovative products at regular intervals of time. clinic and optimizing its benefit in the market place. The company is doing business in nearly 160 countries around the world. to complement those already environmental changes in the industry.

and advances in the understanding of the underlying causes of major diseases provide an unprecedented opportunity and incentive for Pharmacia & Upjohn. speed in developing new medicines. The flexibility in strategy formulation addresses two characteristics of organizational effectiveness as keys to winning in the future. speed in finding the best new discoveries wherever they may emerge. glaucoma. and expenses and to reallocate pursuing alliances to help it resources to those parts of the apply the revolutionary business that are critical to its ongoing success. so as to reach successfully to the next level of performance. depression. and external alliances to
Action
The organization is already looking ahead. speed and flexibility in meeting the demands of today’s rapidly changing health care environment. Analyze the situation in which organization is Developmental plans and Action plans. and the ladder for its upward climb is its innovation. The question that faces the strategic decision-maker is not what Lilly should do tomorrow but what it has to do today to be ready for an uncertain tomorrow. The strategy functioning and realize the potential that the core significantly focuses on enlarging its competitive capabilities competencies create in getting new products and and truly globalizing its operations.
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. and is the benefit of the company. Core competencies lead to cost advantage and greater economic returns. Lilly has implemented a strategy to more sustainable advantage. therapies. identify the new business opportunities. apply and to shift its orientation outward on customers and their unmet synthesize it in new products so as to generate a medical needs. priority research and development projects. The organization has accelerated the discovery and development of improved therapies that help alleviate suffering. It has created new teams to accelerate innovation and to ensure that customers and patients worldwide get the full value of its innovative products. effectiveness and speed.
Case Study of Pharmacia and Upjohn–Building a Winning Strategy
Background The enormous growth and expansion of scientific knowledge. Confronting cancer. especially advances in the real life sciences to the discovery of novel R&D and marketing. reduce disease and improve the role of primary care. It has created a The climate of flexibility in the organization is accelerate the discovery of new dedicated organization to accelerate and integrate its a facilitating factor for creating a working products biotech efforts. Despite the rapid environmental changes in the industry. The company looks ahead of the competition by providing superior health care solutions based on innovative medicines at affordable costs. AIDS. The other trait is flexibility which emphasizes that there is no single strategy that is right for all eventualities and so a capability of any successful organization must be the ability to continually learn in order to evolve and adapt to an everchanging environment. degenerative brain disease. in the area of R&D. it will continue to invest in important new pharmaceutical products. Evaluate the existing products. flexibility could lead to success. bacterial infections and new emerging disease areas. define the objectives and formulate the strategy for reaching those objectives. The core competence expanding markets. from discovery environment where the talents are developed to To rigorously control costs through manufacturing. speed in every aspect of the business will increasingly be what separates headers from laggards. The flexible approach in the strategy formulation views the company’s employees as its most valuable assets. SWOT analysis. fully leverage its historic strengths as one of the world’s To identify the sources of leading technologies to build leading biotechnology its internal expertise and companies. testing them and bringing them to market. Eli Lily and Company can take certain actions to strengthen its area of marketing and R&D further.8
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column model: Market definition. working to further improve its capabilities. The broader effort to unleash and engage all the extraordinary talents of its employees is a big part of the story of Lilly’s revitalization. The flexibility is depicted in the spirit of cross-functional teamwork that allows seeing every part of organization is responsible for its superior performance.
Performance
The key performance indicators are: Sales Profitability Growth and retention of people New product launches The impact of company’s performance on the situation is to outgrow all its competitors through a constant stream of innovation. The performance of process is affected by core competence by optimizing every resource from the laboratory innovation and marketing activities.
Role of flexibility in strategy formulation
The situation in pharmaceutical industry is changing rapidly with a wide range of scientific advances. The company seeks innovation. and marketing enable the organization To strengthen the area of core competence and. One is speed.

It educates people. and Dedicated Manpower. time and money. It gives full a research compound and terminated certain future plans support with the investment of its inputs. The strong.07 Fiscal year* 2000-01 8. The year-toto translate their functional year earnings comparison is The competence at the level of people enables expertise in innovative ways. Pharmacia & Upjohn gained regulatory approval of five significant new chemical entities. trains them additional strategic steps.40 1.63 2. which have. affected the earnings capabilities exhibited by the management to develop core comparability.07 9. significantly affected by the The top management is the the organization to identify new areas where its important actor to carry out restructuring of the company. There is an annual investment of more than $ 1. Detrol / Detrusitol in Sweden Edronax in the United States Mirapex and Rescriptor in the United States (for the treatment of HIV positive patients) Vistide in Europe (for the infection of Retina. Also in 2000-2001. genomics and bioinformatics to find new combinations of chemicals that may be effective in attacking disease targets. bacterial infections and viral infections. and Development.39 9. The restructuring activity the task of building and reflects the ongoing nurturing core competencies. Innovation is critical to driving sustainable competitive advantage in the organization. innovative R&D base enables the company to develop superior health care solutions for its customers and patients. often a complication of AIDS) This achievement is remarkable. The during the last three years.2 billion in research and development.21 5.01 0. marketing and supply chain for developing and delivering novel new products It focuses on innovation search for solutions to world’s unanswered medical problems It offers employees a working environment where they develop and exercise their talents to the benefit of the company Flexibility and speed helps in meeting the demands of today’s rapidly changing health care environment
Main Actors’ Capability
Core competence
The core competence of Pharmacia & Upjohn can be used to define its growth path.10
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charges with the global turnaround program is designed to achieve simplified infrastructure and improved efficiency. The organization is committed to bring innovative medicines to the society based on the efforts of its R&D employees.44 3. The company’s discovery research and product development activities are directed in such a way that the goals set are fulfilled in the most desired manner.63 0. There is a continuous process of aggressive innovative search for superior solutions for the medical problems that are still unanswered in the world. Sweden and the United States.the reason being that the company took properly in the organization. the company is trying to combine its strong platform in chemistry and biotechnology with the resources of its research partners.48 12.75 2.36 4.07 99-2000 2. It is also using technologies such as combinational chemistry. well-integrated global enterprise.
Table 6: Financial Ratios for Pharmacia & Upjohn
Ratios 2001-02 Net Profit Ratio Rate of return on fixed assets Rate of return on total assets Rate of return on capital employed Rate of return on shareholders’ Equity D/P Ratio 3. The skilled and expert individuals The financial ratios of the organization for three fiscal years in the organization are identified and given the authority are in Table 6. focusing its core competencies and then monitors the training implementation. To do this. The financial ratios for the year 2000-2001 are The concept of core competence has been communicated decreasing. The restructuring and other
Financial Performance
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. resulting in a huge charge. including its unique alliances with Sweden’s Karolinska Institute. to leverage its scientific skills. including compounds for diabetics. but the company recognizes that it must continue to identify and bring to market other novel drugs to be successful in the world markets. Being a foreign origin organization. the organization competencies include training and development of purchased exclusive worldwide commercialization rights to manpower and huge expenditure in R&D.95 4.
centres in Italy. it stresses more on growth than profitability. It has a number of promising projects in early discovery research. high throughput screening. During 1997.07
*
Annual Reports Pharmacia & Upjohn for global operations
SAP–LAP Analysis
Situation
Pharmacia & Upjohn is dedicated to making people’s lives better It has a tremendous human focus that distinguishes it from other pharmaceutical companies It has a globalized R&D. transformation of the organization from two unique The organizational core competencies are Basic Research operations into an effective. It is that what continues to separate the winners from the losers in the pharmaceutical industry.69 6.42 .7 6. existing core competencies can be applied.

provide support in training manpower. At Pharmacia & Upjohn. time factor and customer consciousness. Japan. energy and investment. thus reduces cost and leads to competitive advantage Economies of scale and scope An economy of scale is a fundamental understanding of optimal being the best. thus makes the product cost effective. The key issues related to situation are: environmental assessment. time factor Key issues related to processes Link between strategic and operational change.
Processes leading to competitive advantage
Pharmacia & Upjohn has been building itself for the long term so as to enter the 21st century with growing competitive strength. The company is developing people. The process of collective learning encourages the core competence development and makes it easier for employees to share knowledge and ideas.
Learning
The learning issues for the organization are outlined in Table 7. hiring the people. Time factor Consistency and time factor directly affect the customer. Dedicated manpower Understanding of core competence Good Processes leading towards core Training and development. The processes that lead to core competence development are education. and investment. With the progress of science and technology.12
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life for people around the world. Customers are ready to pay higher but definitely need to get quality and aesthetics. It uses the resources of its research partners to leverage its scientific skills. evaluate the same. Collective learning is important for everyone to be on the same plane. The company has enjoyed leadership by providing products and services to improve wellness and quality of
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. Coordinated actions It makes the minimum loss of time. coordinated functions of all functions. select. the successful technology acquisition is a managerial responsibility and is done with efficiency to improve the organizational performance. The main issues related to processes are: link between strategic and operational change. customers have become aware of all the developments and this helps in the absorption of technology easily. competence at the level of people. While as economies of scope is created by providing superior solutions to some of the worlds most vexing and unanswered medical problems. At Pharmacia & Upjohn. Ltd. Hiring key people competence development Product differentiation Product differentiation is driven by customer value and helps in generating competitive advantage. forms and end use. Organizational flexibility Climate of flexibility facilitates creating working environment where the talents are developed to benefit the company. The coordinated actions of all functions lead to competitive advantage as it makes the minimum loss of time. Amersham Life Science. and finally implement it. It has got core competence in pursuing fundamental research so whatever it invents is due to the skills and technologies embedded in the organizational team. training. product differentiation is created with respect to presentations. Organizational learning Success of core competence is in organizational learning and team effort. The success of core competence is in the team effort. technology leadership.
Processes leading towards core competence development
Pharmacia & Upjohn is an organization that wants to be one of the world’s leading pharmaceutical company by virtue of its core competencies in the area of basic R&D. The organization is well aware of these factors and takes it into account for all practical purposes. Capacity utilization Reduces the input cost. adopt. and development. invest in development. technology leadership. products and programs that will lead it to the desired position. The successful management of technology involves the integration of functional and specialist groups for the implementation of innovations. innovation-driven pharmaceutical organization and tries to bring to market novel new drugs. and reap the results. The company is a global. collective learning Global tie-ups Sumitomo Pharmaceuticals Co. Capabilities of management Identify core competencies. The support from the top management helps the organization to build solid and sustainable growth by nurturing and developing the organizational core competencies. It can take place only when everybody is in the same frequency and objectivity. The customer value has got utmost relevance in the organization because of the fact that the product mix is driven by customer value appreciation only. forms and end use. cost is not the main factor for driving a sustainable advantage. The managers identify the source of technology. in-house technology development. as customers are ready to pay higher. thus Pharmacia & Upjohn is trying to build the team spirit so that everybody is on the same plane. evaluate the same. alliances with independent and university laboratories Core competence R&D (innovative new therapies). While growth is priority.
Table 7: Learning Issues in Case of Pharmacia & Upjohn
Key issues related to situation Environment assessment. Customer consciousness Customer consciousness helps in technology absorption. customer consciousness. train manpower.
Technology absorption and implementation process
The process of transforming of technical knowledge into useful products involves knowledge that is non-technical and embedded in the core competence of the organization. Such knowledge is used to deliver products and services that are consistent with the customer desires. As the times have changed. energy. and dedicated manpower. The consistency and time factor are two important factors that directly affect the customer. It is also using technologies that may be effective in attacking serious disease targets. it is also working to reduce the cost base by deploying resources properly so as to achieve a sustainable competitive advantage. It is created with respect to presentations.

References
Kak A. The employees of the organization are understanding and aligned with its strategy for growth. there has to be a consistent and uninterrupted flourishing of acquired technology. Vikas Publishing House. Systems Research and Behavioural Science. 55-70. 38(5). (2000) Strategy Formulation with Core Competence and Flexibility: A Study of Select Organizations.e. essence of core competence and
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. IIT Delhi. and Sushil (2002) Strategy based on Core Competence and Flexibility: Learning Issues for Four Indian Organizations. 3(2&3). to increase revenues. understanding and ready to undergo a challenging transition. The main core competence issues that have been addressed in these case studies include those pertaining to understanding of core competence function. Sushil (1997) Flexible Systems Management: An Evolving Paradigm. training and development. With the help of core competencies.
Action
In order to improve the situation. The organization is determined to become one that sees opportunities in change.
The organization has got very high individual flexibility and is trying to incorporate more changes that will help it to become a stronger company. . and market presence. that involves all aspects of the operations.
Conclusion
Two cases have been discussed. Kak A. and Sushil (2000) Core Competence based Strategy in Sushil. and focused on delivering results. There exists a culture that is more open to change. Kak A. Sushil (2000) SAP-LAP Model of Inquiry.
Issues Origin
Table 9: Comparison of Learning Issues (Pharmaceutical Organizations)
Eli Lilly & Company Foreign Fairly Good R&D (To address unmet medical needs) Marketing Talented people provide fuel core competence and energy
for the creativity important for
Pharmacia & Upjohn Foreign Good R&D (innovative new therapies) Dedicated manpower People get involved into an ongoing process of basic research and development Training & development
Understanding of Core Competence Core Competence
Potentials to develop
pharmaceutical innovations Processes leading towards core competence Technology and core competence Training & development TINPOT CESS
Pump growing stream of Creation of new innovation into global markets technologies and its absorption into new products quickly and effectively Create an environment that Encourages the employees enable individuals to optimize to achieve their fullest their contributions potential for effectiveness and efficiency To outgrow its competition through constant innovation and global marketing To provide superior health care solutions with the help of R&D and its dedicated manpower
Performance
The key performance indicators are: Profitability Social appreciation
Flexibility
Strategy and core competence
Global presence
The impact of performance on the situation creates stir in the environment The core competence of the organization effects the performance as it changes the soul and strength of the organization leading towards profitability It looks ahead of the competition by assessing environment with an action plan to face it.K. New Delhi. which in turn leads to corporate success. and Prahalad C. the pitfalls need to be identified. core competence and technology management. In pharmaceutical industry the basic research and development decides the future of the organization. 14(4). more willing to learn. A turnaround program. and cut costs through redundancies and unnecessary work. Unpublished theses. more fit to compete in the global arena.In this study both the organizations have core competence on the front of research and development. Massachusetts. and. Table 9 gives the comparison of various issues covered in two select organizations.14
advancement of good health. the organizations are capable of achieving objectives and executing strategies effectively. remove obsolete ones and incorporate the new ones for managing the company better. The study has provided an insight that core competence is responsible for generating a competitive advantage.
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flexibility in strategy formulation and implementation. core competence of the organization needs to be focused so that it provides the best potential for growth. To initiate a process that leads towards the core competence development. Harvard Business School Press Boston. Global Journal of Flexible Systems Management. In order to be ahead of competition. The core competencies play an important during the technology acquisition. 347-353. 259-275. flexibility in strategy formulation. training. both are of the foreign origin. Management Decision. upgradation of skills and quality of execution. Hamel G. Global Institute of Flexible Systems Management. To achieve the corporate success. assimilation and implementation process. Some of the changes are difficult for the employees but they are always patient. Cornerstones of Enterprise Flexibility. To identify the efficient and workable processes. (1994) Competing for the Future.

D. P. Abeysinghe and H. Paul
The second factor driving the telecommunications sector is the rapid technological advancements taking place in the industry. Technological advancements coupled with globalization of trade and investment has increased the importance of technological capabilities as a source of competitiveness for enterprises. Praest (1998) suggested that development of technological capabilities in a telecommunications firm enabled it to develop new products and processes and improved the overall performance. Bischoff (2003) suggested that technological capability development in telecommunications sector contributed significantly towards increasing the performance and competitiveness of individual firms as well as enhanced their existing comparative advantages. In a rapidly changing business environment, unless the firms take timely action in developing their technological capability, their very survival may be at stake.

complexity of application and business process integration.

There are two primary factors driving the telecommunications sector: the increasingly liberal policy environment and the rapid technological advancements. The liberal policy environment is generally being achieved through privatization of the pubic telecommunications service providers and also through introducing competition to the sector. With privatization, the ownership changes from the public to the private sector and both local and foreign investments are encouraged. The introduction of competition changes the industry structure from one monopoly firm to many service providers. Since privatization is the cornerstone in a liberal policy environment, it is interesting to examine whether it has a positive impact on firm performance. Many authors have suggested that privatization has a significant impact on performance of the telecommunications sector. Most of the studies conducted Though there are reported theoretical and empirical so far are concerned with telecommunications service studies on the impact of privatization and technological providers in Latin America, Africa and Europe. Ramamurti capability separately with respect to performance, no work (1996), after focusing on the privatization of the on the question of how privatization leads to technological telecommunications industry in Jamaica, Mexico, Argentina capability development of a telecommunications firm has and Venezuela, found that privatization improved fiscal been reported so far. This paper examines the extent of positions, labor productivity and quality of service, and led technological capability development in Sri Lanka Telecom to rapid network expansion. Wallsten (1999) examined the after privatization. effect of privatization on telecommunications firms in 30 African and Latin American countries from 1984 to 1997 This paper reviews literature on various technological and found that there was a capabilities and presents a positive impact on Two primary factors drive the telecommunications value-chain based conceptual performance measures such sector: the increasingly liberal policy environment framework to identify primary as service quality, number of and support activities in a and the rapid technological advancements. telephone connections and telecommunication service labor productivity. Ros and provider. It describes the research methodology and presents Banerjee (2000) found that privatization of a procedure for technological capability assessment of telecommunications firms in Latin America improved telecommunication service providers. This also applies the efficiency and increased network expansion. developed procedure to Sri Lanka Telecom. Based on the Noll (2000) reviewed reforms in the telecommunications sector in developing countries in Latin America, Middle East, Africa, Asia and Eastern Europe and concluded that privatization had improved service in general. After examining 31 national telecommunications firms in 25 countries in Latin America, Canada, Europe, Eastern Europe, Africa, and the Asia Pacific, Bortolotti et al. (2002) also found that the financial and operating performance of telecommunications companies improved significantly after privatization. Li and Xu (2002) used the comprehensive World Bank-Stanford dataset to study telecommunications reforms in 166 countries around the world covering the period from 1981 to 1998. They examined the impact of privatization and competition in the telecommunications sectors in these countries and concluded that privatization indeed contributed substantially to network expansion, and improvement of labor productivity as well as total factor productivity as defined in (Rushdi, 2000). Although a number of studies on the effect of privatization of the telecommunications sectors in the developing countries are reported in the literature, no such study is reported in the context of Sri Lanka.

analysis of technological capabilities, several recommendations for further improvements in technological capabilities are made in consultation with top management. Lastly, some concluding remarks are made.

Literature Review
Because of the significant role of technological capability in the competitive advantage, interest in carrying out research on firm level technological capability assessment began early (Seki, 1992). However, not many studies with an in-depth analysis of technological capability at the firm level have been reported. The older studies also have a number of weaknesses ranging from a narrow definition of technological capability to a lack of systematic methodology for assessment. Additionally, almost all the studies on technological capability deal with firms in the manufacturing sector, with very few examples in the service sector. Historically, studies on technological capability, specifically related to developing countries, date back to the 1960s, when focus was largely on the problems associated with the unsuccessful technology transfer from the

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Technological Capability Development in a Telecommunication Firm
industrialized countries to the poorer countries (Fransman and King, 1984). During this early period, the technological capability of a country was associated with the ability of its firms to effectively manage international technology transfer. From the late seventies, and well into the eighties, the focus of attention started shifting to what happened to technology as it was imported and assimilated. (Rosenberg 1976, Dahlman and Ross-Larson 1987). Technology development thus began to be interpreted as the ability to not only manage international technology transfer but also to master the transferred technology in the sense of making it operative, as effectively as possible, in the specific situation. The work of Rosenberg (1976), Pavitt and Bell (1992) and Sharif (1994) led to a new and broad definition of technological capabilities in developing countries. Their definition referred to the ability of a firm to buy, understand (assimilate), use and adapt (or change), and improve or create technology.

19

Garrone and Rossini (1998) mentioned that technological capabilities of a firm in the telecommunications sector encompass the following activities: development, planning, installation, operation and management of the network; controlling and metering the traffic; interconnecting to other networks; and managing the network. Marcelle (2002), based on study of twenty-six firms in the telecommunications sector of four developing countries in Africa, concluded that these firms could improve their technological capability by focusing on supplier or vendor management. Although a small number of studies have been reported on technological capability in the telecommunications sector, there are no reported studies on technological capability assessment in this sector. Most of the above reported studies concentrate on overall aggregate measures of technological capabilities or technical details. This paper reports a detailed analysis of technological capabilities needed identifying the elements of these capabilities and indicators for assessment of these elements and capabilities in a telecommunications firm.

To assess the technological capability of electric utility companies, Panda and Ramanathan (1995) defined technological capability as a Conceptual Framework set of functional abilities, Technological capability is defined as a set of reflected in the firm’s To develop a systematic functional abilities, reflected in the firm’s procedure for technological performance through various performance through various technological capability assessment, it is technological activities and whose ultimate purpose is activities and whose ultimate purpose is firm necessary to identify the firm level value management level value management by developing difficult activities performed by a firm by developing difficult to in the telecommunications to copy organizational abilities. copy organizational abilities. sector. The value chain The technological capabilities concept, developed by Porter they identified in their study were creation, design and (1985), becomes a useful tool for identifying the activities engineering, construction, production, marketing and selling, performed by such a firm. Panda and Ramanathan (1995) servicing, acquiring, supportive and steering capabilities. extended Porter’s value chain concept by broadly categorizing the value addition activities performed by a However, none of the above authors considered firm into primary value addition activities and support value information technology (IT) capability, which is essential in addition activities. Activities, which result in long-term the telecommunications sector. IT capability was first defined competitive advantage, are called primary value addition by Ross et al. (1996) as the “ability to control IT-related activities, and these are performed in stages. The term costs, deliver systems when needed and affect business primary is used to signify their lasting and dominating objectives through IT implementations”. Bharadwaj (2000) influence on the firm’s business strategy. Activities that further discussed this technological capability and stated support the primary value addition activities are called that high IT capability leads to improved firm performance. support value addition activities. The reported studies on technological capability in the Figure 1 shows the primary and support value addition telecommunications sector have a number of weaknesses. The first and foremost is the definition itself. The definitions are context specific and the level of detail used by authors differs substantially. Second, the methodologies do not specify any systematic manner by which all the technological activities performed by a firm could be listed and corresponding capabilities could be identified. Praest (1998) defined technological capability as the specific capacity of the R&D departments of firms in the telecommunications sector to translate their efforts into marketable products, processes, or services. The number of patents was used as an indicator of technological capabilities.

activities of a telecommunications service provider. The primary value addition activities are in the core and they continuously interact with each other, and with the support value addition activities, which are in the periphery.

Methodology

Qualitative research is used in this study since it is best suited for understanding the complex socio-economic The major activities under the primary value addition phenomena in the telecommunications sector. Out of the stages in a telecommunications service provider are design many types of qualitative research, the case study approach and engineering, creation, marketing and selling, and is used for this study as it is best suited to the empirical servicing. Technological capabilities in each of the primary inquiry that investigates bounded contemporary phenomena value addition stages determine how well the firm could within the real life context (Creswell, 1997). This is perform the activities in these stages. Design and engineering especially useful when the boundaries between phenomenon capability is concerned with network expansion and and context are not clearly evident (Yin, 1994), as in this modernization, and designing new services. Creation case where the object of the study is technological capability capability is concerned with improvement in an existing development focusing on mostly organizational and product/process, creation of new organization structure and management issues and processes rather than technical formation of joint ventures. The marketing and selling issues. The interviews and discussions carried out with the capability is concerned with identifying corporate and nonpersonnel in the telecommunication service provider offered corporate customers, building rapport with them, the convenience of combining both ‘exploratory’ and identification of dealer networks and distribution channels, ‘descriptive’ methodologies, usually used in case study planning, monitoring and coordinating the logistics, research, together. A case study gives a holistic view of the marketing research and the public relations activities. The happenings around a topic, such as the one under servicing technological capability represents the ability to investigation in this research, to examine technological provide high quality service/after sales services, disaster capability development in telecommunication service preparedness and security planning. providers, by going in-depth The major activities through interviews by the use Value addition activities performed by a firm can of “why; how; who; what and under the supporting activities are acquisition, be broadly categorized into primary value when” questions (Wallace, human resources addition activities and support value addition 1984; Yin, 1994; and development, information activities. Primary activities result in long-term Zikmund, 1997). A number of technology and strategic other researchers have competitive advantage. planning. The acquisition demonstrated the usefulness of capability refers to the the case method in capability to acquire technology, finance, raw materials, as technological capability analysis, though in contexts other well as planning, monitoring and coordinating the resource than the telecommunications sector (McCutcheon and acquisition process. The human resources development Meredith 1993, Greenwalt 1994, Simon, Sohal and Brown capability determines the ability of the telecommunication 1994, McGuire 1995 and Corbett and Cutler 2000). service provider to recruit and retain high-level professionals The research reported here is an outcome of the learning who expect more challenges than merely routine work for a of the researchers from the research process. The sociofixed rate of pay. The strategic planning capability is economic-technological system of a telecommunications responsible for the development of long-term core firm presented a challenge to the researchers to delve incompetence of the firm. The information technology depth into concerned managerial-technological issues. The capability is concerned with the billing system, customer researchers gained substantive knowledge of the churn and, computer information networking in the service telecommunications sector from the literature, from experts provider. in the International Telecommunication Union and some Each of the technological capabilities in the primary and rapidly developing companies, and observations of support activities has a number of elements. To assess each performance in the case company. This knowledge was then technological capability it is necessary to assess all its utilized in developing the detailed procedure for analysis elements. Assessment of each element necessitates and assessment of technological capabilities in a identification of indicators of the element. Experts and telecommunications firm. practioners then rate these indicators. The ratings of all Participant Selection indicators are then aggregated to obtain the overall rating of an element. The ratings of all elements then give an The International Telecommunication Union (ITU) is a indication of the level of the concerned technological repository of experts with extensive experience in capability. In this paper, we represent the level of telecommunications development, telecommunication technological capabilities using hub-and-spoke polygons standardization and regulatory affairs through out the world. whose spokes represent the levels of the elements. At an Five experts in the ITU Asia and Pacific Regional office aggregate level of overall technological capability, the were invited to participate in identifying the technological spokes represent the various capabilities such as creation, capabilities, the elements of the technological capabilities,

1
HDC2 HDC2. to perform all the primary value These indicators addition stages. availability of critical mass in R&D funding are elements where technological capability assessment needs some possible examples of these indicators. Selected Performance Indicators for Prequalitative factors. Considering the existence and interaction of many Table 1. The diversity of the R&D planning group.
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.3
Figure 3.1 HDC2. the output indicators measure the output or final achievements. design and engineering. e.
Technological Capability Assessment
A three-step procedure is used in assessing the technological capability of telecommunication service providers (Figure 2). represent how importance of the primary value information technology and strategic planning. total training hours used. with respect to their contribution towards the overall value extent and strength of linkages among R&D. where (in SL Rs. The relative acquisition. These levels are used for assessment of the technological capability elements. 3 and Apendix A.22
D. attempt to assess whether Indicator Development for Technological Capability capabilities are available or are being used to do the right Assessment things. Several surrogate indicators of different categories are needed for a comprehensive assessment of each element of technological capability.620 Subscribers element. The indicators for assessment of capability Subscribers for Enhanced elements must be measurable from available data. information technology and strategic planning). Average Annual Revenue 6675 19. Table A-6 show an example.2 HDC1.585 Fig. The first step in this procedure is identification of the value addition stages. First. At this step. and also Services (SLT PLUS) satisfy the criteria for reliability and validity. marketing and selling. while difficult to develop.350 768. human resources development. material productivity etc. capital productivity. 694 capability.g. Identification of Value Addition Stages Fourth. medium) of the indicators are determined at Step 3. The number of indicators needed may Indicator (1991 – 1996) (1997 – 2002) vary depending on the capability element being assessed. human resources development. Below it is described how assessed ordinal values of indicators are combined to determine the assessed value of a technological capability element. A Procedure for Technological Capability particular period. Third. normally specified in the form of output per unit time.3
Indicators
HDC1. servicing. low.
Technological capability
Elements
HDC1 HDC1. P. academia and creation is used to identify the technological capability industry. Second. Schematic Representation of the Indicators for Assessing Human Resourcee Development Capability
Appendix A (Tables A-1 to A-8) shows a set of possible indicators for assessing the technological capability of a telecommunication service provider in the primary value and support addition activities (creation. the technological capability elements are identified. and include labor productivity. the effectiveness indicators refer to doing the right things rather than In the telecommunications sector. Paul
Human Resources Development Capability
departmental/divisional managers at SLT to ensure the relevance and applicability of the assessment. the productivity indicators show the Assessment of a Telecommunication Service Provider resource utilization efficiency. Possible indicators for each of the technological capability elements are identified at Step 2. such as the number of telephone connections given during a Figure 2.. to be carried out. The criteria for different levels (high. Million) several indicators were identified for each capability Average Number of 204. it focusing only on is rare for a single service provider Major activities under the supporting activities are doing things right. effectively an activity addition stages and support activities is performed. Abeysinghe and H. acquisition. in this case of human resource development Average Number of Nil 24.2 HDC2. These indicators. a number of objective and subjective and Post-Privatization Periods indicators may be used for the measurement of technological Performance Pre-Privatization Period Post-Privatization Period capability elements. the input indicators measure the inputs in absolute terms.

The eight projects and actions. which transformed SLT into a high performing firm with transfer of technology and management skills from NTT. heads of regions within the real life context. The increase in the area of the polygon represents the extent of technological capability development.
Figure 4. this period SLT underwent major restructuring of DEC1. During this period out of the twelve projects view that they were able to eliminate many administrative that were carried out by SLT. The reason for this is during this period. With the elimination of many levels of were carried out entirely by the staff of network planning hierarchy. applications. rated CRC3 as non-existent for both pre. Capability to adapt and modify existing process. During the postengineering capability for both pre. the post-privatization period provinces and sections). since the engineers only worked with the suppliers in modifying existing processes. the respondents rated Design and Engineering Capability (DEC) CRC2 as insignificant. The reason pointed out was that SLT had hardly any changes to its organizational structure except The assessment of the five elements of the design and for becoming a corporation in 1991. service and communication infrastructure
CRC1 was non-existent during the pre-privatization period.
CRC4. and have yet to be developed. CRC3. The facility planning merger was a major organizational change. Capability to manage joint venture partnerships
During the pre-privatization period.
and post-privatization periods. reason for this is because all SLT management introduced Case study approach is used in the study as it is the projects that were carried a flat organizational structure best suited to the empirical inquiry that out by SLT during this period (with few levels such as heads investigates bounded contemporary phenomena were with the full assistance of of groups.
DEC2. CRC4 was rated as medium. CRC4 was rated as nonexistent since there were no joint venture partnerships. cell planning. copper and optical fibre access as well as digital radio access were used. applications and communication infrastructure to suit the needs of Sri Lanka. performance. external consultants. Capability to create new organizational structure
During the pre-privatization period. The reasons pointed were related to the seemingly successful joint venture of NTT of Japan and SLT. During and heads of divisions. Abeysinghe and H. merely to indicate that almost all the elements are insignificant or non-existent. eight projects were performed functions to quicken budget. such as Code Division Multiple Access (CDMA). the organizational structure went through a further major During the pre-privatization period the respondents rated change with the introduction DEC1 to be at a low level. development of projects Synchronous Digital Hierarchy (SDH) over Plesiochronous Digital Hierarchy (PDH). Asynchronous Transfer Mode (ATM) Since SLT did not carry out R&D work. CRC2 was rated to be medium. CRC1 was considered to be insignificant by the Chief Operating Officer. Capability to carry out network expansion or privatization with the collaboration of NTT of Japan. and divisions. overtime analyses without any external assistance and for the other four projects external assistance was necessary. During the postprivatization period. During the post-privatization period. privatization periods. DEC2 was rated to have reached a high level with the introduction of new technology for network modernization.24
D. In the year 2000. the SLT management was of the medium level. schemes.
Creation Capability (CRC)
The assessment of the four elements of the creation capability for both pre. the respondents introduction. digital transmission. and top-level management as well as between internal has adequate and reasonable experience on multiple access groups. The staff has been trained on significantly improved through increased interaction among evolving telecom networks from 1998 September. Paul
The creation capability is at a very insignificant level at SLT and thus in Figure 4. With NTT bringing in the required
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. P. The of new groups. senior managers stated that communications and engineering group. Capability to plan. its ratings are shown for both pre-
privatization periods. Creation Capability Before and After Privatization
CRC2. monitor and control R&D network infrastructure. since SLT did not carry out any major R&D. With DEC1 was rated to be at a the flat structure in place. etc. PDH. Capability to carry out network modernization
During the pre-privatization period DEC2 was rated as medium.and post-privatization periods is as follows:
CRC1. The staff staff. digital switching.and post-privatization privatization period. integrated services digital network (ISDN). During periods is discussed below.and postnetwork termination equipment. During the post-privatization period.

9 and 1.26
D. other than sponsoring some sports events. abbreviated dialing.67 months in 2001. Capability in public relations activities During the pre-privatization period. according to the Head of Information Technology know what its customer needs are especially in the case of Division. For most of the major projects. through the computerized billing system. therefore MSC4.) Limited (DLPL). the cost overrun was more than 20%. IDD user packages. this was rated as medium. The advertising cost as percent of operational During the post-privatization period. Capability to introduce different user packages planned revenue) recorded a figure of less than 1.1 was rated as low. and web hosting were offered. Even though a customer database is not maintained at rated as high.
MSC4. Paul MSC7. all for a fee of less than a dollar per month. Capability to carry out customer need analysis During the pre-privatization period. The major reason for the cost overrun was poor planning. Capability to maintain a customer database MSC6. the management set with Directories Lanka (Pvt. Capability to increase the number of subscribers for enhanced services
During the pre-privatization period. Even in rural areas. and 512 kbps and 2 Mbps. the need and During the post-privatization period MSC9 was rated as necessity in carrying out marketing research was not felt. SLT staff carry out customer need analysis to present. the respondents rated MSC7 as nonexistent. MSC5. telephone connections are available over the counter. since customer need non-existent since such a database was not maintained. since marketing research During the pre-privatization period MSC9 was rated as was not carried out the respondents rated MSC5 as noninsignificant since major advertising activities were not existent. general customer segments. they also measure talents and creative expressions among the youth through SLT’s market position within the corporate/business and the “Directory Cover Painting Competition”. MSC10. the overall provider may have resulted from changes in the packages such as heavy to MSC4 was rated as medium. and monitoring of projects. the respondents rated MSC6 as During the post-privatization period. rated as medium. monitor and coordinate marketing and selling activities
During the pre-privatization period the overall MSC4 was rated as low. In addition. the customer base for SLTPLUS had surged from 338 in 2000 to 24. which is a package with call forwarding. MSC4. SLT has been able to meet the demand if a network is available. and also losing the monopoly status. since enhanced services were not available. Abeysinghe and H.1 was privatization alone. continued to promote and upgrade artistic launching of new products. The reasons were that after privatization. MSC5 was rated as high expenses was between 0. SLT faced competition from other telecommunication service providers. therefore MSC4. regulatory conditions in the country as well as low International Direct The cost over-run during this improvements in the telecommunications Dialing (IDD) for business period was between 5% and technology worldwide rather than from users. therefore MSC4. MSC10 was rated as During the pre-privatization period. During the post-privatization period MSC6 was low.75% and 1%.3 was also rated as customer base grew by 353 new customers to reach 1167 at medium. The waiting time for a telephone connection has been completely eliminated in those areas. 128 between 0. therefore During the pre-privatization period MSC8 was rated as nonMSC4.3 (the average delay in existent since SLT did not introduce different user packages. absentee services. medium. During the post-privatization period. caller line identification). SLT in association because with the privatization of SLT. The SLT staff now publishers of The Sri Lanka Telephone Directory and the carries out marketing research to evaluate and plan for ‘Yellow Pages’. SLT Net. According to the Head of Marketing Group. call waiting. Actual which includes Public revenue as a proportion of planned revenue recorded a figure Switched Telephone Network (PSTN) dial up at 56 kbps.694 accounts in December 2002.
the time taken to deliver the service is less than one month. Capability to carry out marketing research MSC9. MSC10 was rated as non-existent. The Gampaha expansion project carried out by SUMITOMO Corporation had a delay of 14 months. certain Voice Mail Service (VMS). The senior managers were of the view that due to carried out. SLT then had to introduce enhanced services such as SLTPLUS (Sri Lanka Telecom PLUS).6 months in 1996 installation. the monopoly situation enjoyed by SLT. the end of 2002.2 was rated as medium. client mail server The debt holding ratio improved from 11.2 was rated as low. kbps. hotlines. Several user privatization period. P. heavy to low domestic 20%.2 (actual revenue as a proportion of MSC8. Especially in all locations in the Colombo Metro region and other major cities. During the postmedium. conference call (3 party calling). SLT CLI (Sri Lanka Telecom reports could be obtained. thus MSC4. the official up the Marketing Planning Division.
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. Capability to plan. analysis was not carried out. MSC4. making payments) was more During the post-privatization than 11 months and it was rated Sizable level of the improvement in the service period MSC8 was rated as as low. SLT’s ISDN to 3.

During post-privatization period the overall ACC2 was rated as low. Abeysinghe and H. Capability to assess. 56% of the projects are financed with SLT’s own funds while 27% by overseas development agency funding and 17% with suppliers’ credit. very seriously and it was handled well. caused serious problems to the network thus the entire system crashed during the traffic congestion. bid evaluation.3 was rated as medium. which was described as a disaster of uncertain proportions but with a certain date.2). quality and availability and price of required components
During both pre-privatization and post-privatization periods. Paul
ACC2. thus ACC4.
During the pre-privatization period. thus ACC2. Capability to identify.28
D. Servicing Capability Before and After Privatization
Acquisition Capability (ACC)
The assessment of the five elements of acquisition capability is described below.
ACC4.1 was rated as low. During the post-privatization period. negotiate and finalize the terms of the technology to be acquired
During the pre-privatization period the overall ACC2 was rated as insignificant.3). However. To perform contractual activities (ACC2. Capability of having up-to-date information about specifications. thus ACC4. The average time overrun during the resource acquisition process as a percent of scheduled time was high. No database on operation information of technologies was maintained since the projects were on turnkey basis.
ACC1. which included a series of deadly suicide bombing attacks on the capital city. P.4 million was spent from Government Guaranteed Project loans. SLT performed all activities pertaining to procurement of raw materials.1) during the pre-privatization period were with external support.1 was rated as low. negotiating and finalizing the terms and conditions (ACC4. However. US$156. the overall ACC4 was rated between low and medium. for both pre. the concerned personnel rated ACC4. According to the Head of Treasury Division. ACC5 was
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. Six loans were identified with the support of external agencies. bid evaluation. thus ACC2. no such database exists at present. thus
ACC5. Thus the degree of dependence was low and capability high. and therefore. external consultants carry out such contractual activities for projects funded by Japan Bank for International Corporation (JBIC). Although the need for maintaining a database on operation information for technologies used has been felt. Most of the projects were carried out on turnkey basis. ACC2. SLT required external assistance. SLT took the Y2K problem.
ACC2. monitor and coordinate the resource acquisition process and vendor development
During the pre-privatization period.and post-privatization periods. which included measures for disaster management. Sri Lanka’s man made endemic disasters of terrorism.3 was rated as low. while SLT also undertook some projects.
ACC3. According to the Head of Treasury Division these investments were from Government Guaranteed Project loans. During the post privatization period ACC1 was rated as medium. Number of projects sponsored through bilateral and multilateral agencies were more than five. All the financial packages (11 loans) identified (ACC4. thus ACC4. All the projects undertaken were on turnkey basis and external consultants carried out technology acquisition work.3 was rated as medium. there is room for improvement. During the post-privatization period. ACC4.7 million was spent on investments. thus ACC4. The comparative picture of the servicing capability is presented in Figure 7. more than five projects were financed. External consultants handled tender document preparation. negotiate and finalize the terms of finances
Figure 7. However. the dependence was very high. Therefore. thus ACC2.1 was rated as insignificant. contract negotiation and letter of award placement. Thus. During the post-privatization period the overall ACC4 was rated between low and medium. According to the Chief Operating Officer who was working at that time with the Sri Lanka Telecomm Corporation.2 is non-existent. supporting facilities and consumables. ACC2. through bilateral and multilateral agencies.1 was rated as low. It shows that SLT possess a medium level of specialization for almost all elements of servicing capability after the privatization. while SLT also undertook US$119 million worth of projects. pre-privatization political involvement in the procurement process hampered expansion considerably as it took nearly one-year to obtain approval.2 was rated as non-existent. The capability to carry out projects/investments
During the pre-privatization period ACC1 was rated as low as only US$25. ACC5 was rated as low. and pre-tender conference. however still a long-term solution to disaster recovery has not been implemented by SLT. SLT now has in house capability of carrying out contractual activities such as floating tender.3 was rated as insignificant.2 was also rated as low even though SLT staff carried out the assessing. negotiating and finalizing the terms of condition. Capability of the organization to plan.2 as low. Although SLT staff carried out the assessing.
Telecommunication Regulatory Commission sought to enforce license conditions. Currently SLT is planning to mitigate the effects of disasters.

23. During this period strategic planning was not carried out. a new flexible billing system.1 was rated as low.30
D. During this period.1) was accessed through computerized databases. the overall SPC1 was rated between low and medium. Capability to undertake strategic planning
During the pre-privatization period. According to the Heads of Billing and Collection Division and Information Technology Division.3 was rated as medium. however a separate billing is made for each service and converged billing cannot be provided.015 per minute. SLT followed a weak-follower strategy during the pre-privatization period by waiting until the technology is proven and acquired well-proven and old technologies. This figure shows that with privatization the capability level of two elements showed a significant improvement.2) was rated as low since the databases were not up-to-date.3 was rated as medium. special attention has to be given for maintaining a database for the churn rate.4). SLT was under pricing the local call charges by increasing the IDD charges and therefore had a national call charge of US$0. the overall ITC3 was rated as low.1 was rated as low.2 was rated as high. thus SPC1. However. SLT still adopts a follower strategy by acquiring state-of-the art technologies.1 is 0. The reliability of the information system (ITC3. During this period. accurate and up-to-date. the overall SPC2 was rated as low. Abeysinghe and H. During the post-privatization period. ITC3.2). the overall ITC3 was rated between medium and high. Paul
Information Technology Capability (ITC)
The three elements of the information technology capability are assessed below for both pre-and post-privatization periods. According to the senior managers.4 was rated as low. SLT was under capacity and could not meet the demand of the consumers.
ITC3.and post-privatization periods. thus ITC3. The necessity of assessing the competitive environment
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. thus SPC1. With respect to the average price of national calls (SPC1. Capability of having a flexible billing system
During the pre-privatization period ITC1 was rated as low. With respect to networking (ITC3. During the post-privatization period. More than 90% of the information needs (ITC3. Capability to assess the competitive environment
During pre-privatization period. the desired information is available when needed.1 was rated as medium. thereby reducing the IDD rates and now the domestic call charges are US$ 0. Thus. Billing system was computerized in 1997.
ITC2.4 was rated as medium. Capability of providing information support and networking
During the pre-privatization period. was on the cards. thus SPC1. therefore the flexibility of the system was very low. SPC1.2 was rated as medium. it might take some more years for SLT to adopt a leader strategy.
SPC1. thus ITC3. During this period. Information Technology Capability Before and After Privatization
Strategic Planning Capability (SPC)
The two elements of the strategic planning capability are assessed below for both pre.1) are met by accessing computerized databases. During the post-privatization period. the billing system was not computerized.
Figure 10. and they have a separate local area network (LAN) with a fibre optic backbone. which can accommodate a wide range of customer friendly packages and discount schemes. Head of Information Technology Division is considering developing a database especially for their blue chip clientele due to various marketing activities carried out by SLT’s rival telecom service providers. Capability of maintaining a database for churn rate
No such database was maintained during both pre and post privatization periods. a Wide Area Network (WAN) was introduced in 1997 and now almost all the offices of SLT are in the WAN.3 was rated as medium. Thus SPC1.2 was rated as medium. according to the senior managers.032 per minute.3).
SPC2. During this period. The optimal reserve margin (Note1) SPC1. ITC1 was rated as medium. thus SPC1. Over the past six years.
ITC1. During the post privatization period. A detailed billing is provided only on customer request. thus SPC1. thus ITC3.3 was non-existent. The SLT headquarters has three main multistorey buildings. SLT increased the domestic call charges (SPC1. SLT is reducing international call charges by 8-10% every year. thus this capability was rated as nonexistent.1 was rated as medium. The comparative picture of the information technology capability is presented in Figure 10. the overall SPC1 was rated as medium. With respect to the position in the technological progression path (SPC1. thus SPC1. by developing and implementing new technology. There was no networking within and outside the organization. SLT invested 400 million US$ in developing state-of-the art communication infrastructure and ISDN was introduced.2). thus ITC3. During this period. P. the usage of computers in different regional telecommunication centers was low and less than 50% of the information (ITC3. SLT introduced digital transmission and therefore due consideration was given to the future thrust of technology.

The ‘121’ Faults Reporting Centers. However. negotiate and finalize the terms of technology to be acquired is still at a low level. operating efficiency. it is understood that a sizable level of the observed improvement may have resulted from changes in the regulatory conditions in the country as well as improvements in the telecommunications sector technology worldwide. The case study finds that most of the performance indicators such as connectivity. which were introduced in 1998. The Teleshops have become SLT’s biggest sales channel. especially for broadband access including ADSL and ecommerce solutions. With privatization. and overall efficiency of SLT. as a result of economies of scale and scope. considering these reactions and findings of the study. Since a major part of SLT’s business is now transacted at Teleshops. established in Colombo in 2002. Table 1 shows how three important performance indicators. Most of the elements of design and engineering capability have reached a medium or high level after privatization. the capability to identify. However. network expansion and capital investment. SLT is still transforming from a public utility to an efficient private sector company. have increased significantly after SLT was privatized. political interferences in decision-making have been almost completely eliminated ensuring improved resource allocations. SLT has managed to remain competitive. With regard to creation capability. have been computerized to monitor and control the faults clearance process. SLT’s acquisition capability elements also increased with the privatization. SLT’s servicing capability has increased to a medium level with the privatization. SLT needs to concentrate more on their corporate customers. Abeysinghe and H. This had been due to the culture of competition and dynamism created among the staff after privatization. One factor evident from the
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. even though the need has been felt in having their own R&D centre to carry out R&D work. SLT would have to enhance human resources development capability to help its long-term strategy of developing a superior human resource profile. its creation capability is low even after privatization. SLT has already included the need for an R&D centre in their strategic plan and they have selected a location for setting up the centre. Colombo faults reporting centers have been connected to various exchanges in Colombo creating a Wide Area Network (WAN) in order to access information required for managing faults. SLT’s training centre could team up with local universities to provide appropriate degrees after the completion of certain training programs and examinations. further improvement in this capability is required with the introduction of more advanced technology and skilled personnel to provide maintenance as well as through opening of more OPMCs in other areas of the island. SLT’s strategic planning capability is still at a medium level and it is envisaged that the newly set up corporate planning unit will enhance this capability in the future. Information technology capability needs to improve to make the billing system more flexible and customer friendly. by improving staff motivation and speed of decision making. SLT’s Teleshops introduced after the privatization has revolutionized customer service. Despite the changes in corporate management and identity. had improved the servicing capability and quality of the maintenance. such as mini or executive MBA programs with the University of Moratuwa. Paul
case study is SLT’s human resource development capability. as does its cash-generating base of fixed line customers. revenue. The main reason is that SLT still depends on their joint venture partner NTT for all R&D work.32
D. the average number of subscribers and the average number of subscribers for enhanced services. This would be only possible if they develop and maintain databases on services to these customers. Although SLT’s technological capabilities have risen in many areas with privatization. SLT’s extensive network backbone provides SLT with a comparative advantage. the average annual revenue. it is necessary to have more involvement and representation in ITU and Asia Pacific Telecommunity in setting up standards. The flat organizational structure has given key staff more autonomy and to a large extent eliminated the inefficiencies of a bureaucratic organization. Most of the elements in marketing and selling capability have surged with privatization. P. The main reason given for this is NTT bringing in the required capital and technical know-how. rather than from privatization alone. it may take some more years for SLT to have this capability. A further study in delineating the technological capability
made in consultations with top management. SLT needs a formal telecommunications strategic plan. which did not change after privatization. Although the extensive network and system rehabilitation program launched in 2000 as well as the Outside Plant Maintenance Centre (OPMC). they need to place considerable emphasis in developing the customer care skills of the staff at these shops by providing training on business and sales communication skills as well as through significant reorientation in employee attitudes and approaches in the levels of customer care offered. the CEO of SLT mentioned that. have improved from their low average values during the preprivatization period to substantially higher values during the post-privatization period. SLT’s capability for information technology too improved with privatization due mainly to the increased usage of IT. From the case study it is clear that almost all the technological capabilities achieved a medium level of achievement after privatization due to change in customer focus. These onestop shops provide a wide range of services and products under one roof. In order to enhance the design and engineering capability. improvement in service levels. assess. quality of service. which will ensure sustaining their growth as well as maintaining their competitive position in the industry in Sri Lanka. The purpose of this study was to analyze technological capability improvements after privatization.

1.Teledensity (telephone lines per 100 inhabitants) If less than 5% Criteria for Evaluation Medium If between 5 % and 30% High If more than 30%
If less than 5
If between 5 and 30
If more than 30
MSC2. Capability to provide service to customers as per contract MSC3. Actual revenue as a proportion If ratio is less than 0.1. Degree of dependence on developing and maintaining the transmission including quality of transmission MSC3. credit details. Average delay in payments MSC5.9 of planned revenue MSC4.2.2.1. Abeysinghe and H. Ability of the organization to provide the service on time If support was necessary If support is necessary If support was not for all activities for operating and maintaining necessary for the transmission operating and maintaining the transmission If more than one month If between one week and one month If between 5% and 20% If less than one week If more than 20%
MSC4.75% to 1%
MSC9. monitor and MSC4.1. Capability to plan.2.1. Average cost overrun for the If less than 5% coordinate marketing and selling activities major projects as a percent of budgeted cost MSC4.1. Degree of dependence on If support is necessary for If it is necessary for design If external support is the transmission channel for the service external agencies for the completion of design and engineering only engineering and construction necessary for all transmission projects activities MSC2. and bid and negotiate the terms of sales.1.Extensiveness of the customer database
No maintenance of a database Contents of the database: Details of customers usage information Frequency of updating: annually
MSC11.36
D. Capability to carry out marketing research MSC5. Degree of dependence on external agencies for identifying customer needs analysis
If no customer needs analysis was carried out and the organization was fully dependent on external agencies If less than 20% If less than 20%
If they received some assistance from external agencies by way of carrying out the field surveys
MSC7. Paul
Table A-3.1. Capability to identify customers. Percentage of increase in of subscribers for enhanced services subscription for enhanced services MSC8. Capability to develop and maintain MSC2.3. Capability to maintain a customer database MSC8. Capability in public relations activities MSC10. Percentage of corporate customers
If the increase in percentage If the increase in percentage If the increase in is less than 5% is between 5% to 20% percentage is more than 20%
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. Capability to introduce different user packages MSC9. Degree of dependence on external agencies for carrying out marketing research If less than 30 days If no marketing research was carried out and fully dependent on external agencies
If ratio is between 0. Capability to carry out customer needs analysis
MSC6. Percentage of increase in total revenues from all telecommunications services MSC1. Capability to increase the number MSC7. usage of different services.9 and 1 If ratio is more than1 If between 30 to 120 days If they received some assistance from external agencies for carrying out field surveys If more than 120 days If Marketing research was carried out wit h the assistance of the staff of its marketing and sales division If the customer needs analysis was carried out with the assistance of the staff in the marketing and sales division If more than 50% If more than 50% If more than 1% Contents of database: Details of customers usage information. Advertising cost as a percent If less than 0.1.75% of total operational expenses MSC10. calling groups Frequency of updating: monthly/daily
MSC6. Indicators Low MSC1.1. Capability to identify the corporate customers or high volume business users
MSC11. Percentage of sales for different user packages
If between 20% to 50% If between 20% to 50% If between 0. P. Marketing and Selling Capability Elements and Possible Indicators for their Assessment
Capability Elements MSC1.1.

Capability to have a flexible billing system ITC2. monitor and coordinate the resource acquisition process and vendor development
ACC4. Abeysinghe and H.1.1.3. Human Resources Development Capability Elements and Possible Indicators for their Assessment
Capability Elements Indicators Low HDC1.Number of projects sponsored through bilateral and multilateral agencies ACC5. assessing. Capability of maintaining a database for churn rate ITC3. Degree of dependence for the If all financial procurement procurement of finance activities were executed by self.1. Information Technology Capability Elements and Possible Indicators for their Assessment
Capability Elements ITC1. Percentage of technical professionals over the total number of employees HDC1. accurate and up-to-date If all the computers and systems within the organization are linked and also have linkages with outside agencies
ITC3.2. Average hours of training per person per annum HDC2. Average time overrun during the resource acquisition process as a percent of scheduled time ACC5. Degree of reliability of the information system
ITC3. negotiating and finalizing the terms of condition If more than 10 If more than 30%
ACC5.3. Capability to plan. Level of networking within the organization and within the outside agencies
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.38
Capability Elements Indicators
D.1.3. The flexibility of the billing system ITC2. Capability for providing information support and networking Indicators Low ITC1. Capability of providing training to improve the skills and abilities of employees and to motivate them
HDC2. P. not always accurate and not up-to-date If all the computers in the organization are not linked
Between 50% to 90% of theIf more than 90%of the information needs are met by information needs are accessing computerized databases met by accessing computerized databases If the desired information is not available less than 25% of requested times.2. Degree of optimality in internal and external training mix If less than 10% Criteria for Evaluation Medium If between 10% to 50% High If more than 50%
If less than 10%
If between 10% to 50%
If more than 50%
If more than 30% If less than 20
If between 10% to 30% If between 20 and 40
If less than 10% If more than 40
HDC2.2.2. accurate and not up–to-date If all the computers within the organization are linked but no linkage to outside agencies If the desired information is available when needed. The percent of new vendorsdeveloped in various fields
If less than 5 If less than 10%
If between 5 to 10 If between 10% to 30%
If less than 10% of the new contracts were awarded to new vendors
If between 10% to 20% of If more than 20% of the the new contracts were new contracts were awarded to the new vendors awarded to the new vendors
Table A-6.2. Capability of recruiting and retaining highly qualified technical staff HDC1. Degree of computerization If there is a separated billing Criteria for Evaluation Medium If there is a separate bill with detailed calls services in one bill If between 10% to 30% High If it is possible to provide multiple If less than 10%
If more than 30% Less than 50% of the information needs are met by accessing computerizeddatabases If the desired information is not available more than 25% of requested times.1. Paul
Criteria for Evaluation Low ACC4. Average rate of professional employees resigning HDC2.1. Percentage of customers joining other service providers ITC3. Percentage of IT professionals over the total number of technical professionals HDC1. Degree of dependence in various training activities
If person-hour of training If person-hour of training obtained from outside is obtained from outside falls in either less than 5% or the range of either 5% to 10% more than 30% of total or 20% to 30% of total training person-hour training person-hour If less than 10% of only If between 10% to 50% of training material preparation only training material preparation and training conductance are and training conductance are carried out by outside agencies carried out by outside agencies
If person-hour training obtained from outside falls in the range of 10% to 20% of total training person-hour If none of the important training related activities are done by the organization or more than 50% of the training material preparation and training conductance are performed through outside assistance
Table A-7. excepting few occasional review by external consultant Medium If external assistance was necessary only for reviewing the finalized terms and conditions High If external assistance was necessary for identification of financing source.3.

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. Asian Institute of Technology in Thailand where he served as Dean. Abeysinghe is a Senior Lecturer in the Department of Industrial Management. University of Kelaniya. Paul
Flexibility Mapping : Practitioner's Perspective
1. total quality management and management of technology. 2. 3. Asian Institute of Technology in Thailand.
Prof. His research and teaching interests are in the areas of supply chain management. is it possible to use it for benchmarking purposes? To what extent the findings of this paper are relevant for the technological capability development of your organization?
Mrs. Professor Paul had taught at National University of Singapore. Sri Lanka. Currently. Completely Flexible Develop a SAP-LAP (Situation Actor Process-Learning Action Performance) model of “ Technological Capability Development” relevant to your organization Low Maximum Hierarchical Stable
Reflecting Applicability in Real Life
1. USA. He holds a Doctor of Engineering degree in Systems Engineering and Management from Asian Institute of Technology. Identify and describe the types of flexibilities that are relevant for your own organizational context? On which dimensions. Himangshu Paul is a Professor in the School of Management. What types of flexibilities you see in the practical situation of “Technological Capability Development” on the following points: Flexibility in terms of “options” Flexibility in terms of “change mechanisms” Flexibility in terms of “freedom of choice” to participating actors. Her research interests are technology transfer and technological capability development in the telecommunication sector. flexibility should be enhanced? 3. and University of Canterbury and Auckland University of Technology in New Zealand.40
D. Based on the research process in this paper. Try to map your own organization on following continua (Please tick mark in the appropriate box(es)) Organization environment Unstable Organization structure Networked Strategy of the firm Focus on services or robust for future Technology Infrastructure High Service Offerings/Value Proposition Completely Rigid 4. Dhammika P. North Carolina State University. she is a PhD candidate in management of technology in the School of Management. 2. Abeysinghe and H. P. How do you find the case study presented in this paper relevant to your organization? Critically examine and use the relevant issues.

Additionally. but also forgiven from earning profits and dividend payments (Walters and Monsen 1979). participants including central authorities. This Organizational Performance was triggered by. This not only encouraged them to form and to act within groups as per their vested interests. evaluation of performance Moreover. However. another case on debatable issue. organizational efforts towards non-economic activities which led to economic As per literature. “the SOE’s objectives either as imposed by its chief executive and directors or as emerging from a complex organizational coalition”. In return. Martin and Parker 1997). These investments were oriented mainly. In case of SOE. 1998). Hence. Lack of clarity for assessing organizational organizational success by the same study suggests isolation performance remains not only at the level of measurement from employment generation and socio-political but also on dimensions to be considered. what does organizational performance connote? economic viability. but also fertilized and fueled them to generate further slack amenable to their selfish interests. In case of Poland. atmosphere in SOE presents not only the loose coupling between structure and actions but also the loose links between actions and outcomes (Spenner et al.
(Figure1). and furthered the. According to Caves (1990:151). However. and more specifically change in ownership has been discussed. there was blurring of organizational goals and objectives due to mixing of allocation and production activities.
An Indian case-study by Singh (2004) suggests that SOE resources are used not only to generate employment and Organizational Adaptation as a Need for provide facilities for certain sections of society but also to Restructuring sell the products at lower prices than the cost incurred. Unfortunately. At the level of commercial requirements. Martin and Parker 1997). SOE were not only offered a preferential access to states’ purse. environment. either to create
Figure 1: SOE Restructuring (Schematic Diagram)
Figure 2: SOE Restructuring with Intricacies on Performance Measurement
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.42
Sudeshwar P Singh
facilities for luxuries of their own employees or to please the central authorities and political leaders (Kostera and Wicha 1996). its root as there was no fear of measurement of SOE. which was collected through tax-payers’ money and permitted hidden subsidies. which created a situation of incompatibility between investment and political time frames (Moore 1992. which is in Kostera and Wicha 1996). there is a need to examine the organization related issues of SOE restructuring in depth and conjectures are explored to fill this gap through this effort. Kostera and Wicha 1996). organizational performance has been quite inefficiency and failure. politicians and organizational managers used state-owned enterprises as a means for achieving goals other than economic goals (Kostera and Wicha 1996). specificity and objectivity in performance clearly visible from the case of The profit making attitude lost Punjab Tractors (Singh 2004). Similarly. no operation in economic and need to pay dividends and socio-political arena assigns the organizational resources in preferential access to state financing through tax-payers’ two different activities pertaining to respective arena to money (Walters and Monsen 1979. Effect on performance of external restructuring. Additionally. which led to the lack of goal clarity and jeopardized the attainment of organizational objectives and efficiencies (Kay and Thompson 1986. there seems to be a reasonable level of gap between organizations’ actual level of performance and that expected from it (Martin and Parker 1997). Above mentioned discussions and the Is it focused on economic and commercial aspects of the two cases studied by Singh (2004) suggests that there are activity alone or with non-economic goals as well? Literature two distinct arenas in which SOE operates. simultaneous loss making or bankruptcy. Thus. Operations in were reallocated by centre Inclusion of 'Socio-political' and economic economic arena decide the after collection (Granick 1960 dimensions bring distinct level of clarity on economic success. and production and marketing of goods as per latter poses unique level of difficulty. obtain desired objectives. These are suggests that profit making activities lost their significance economic and socio-political as profits earned by enterprise ones (Figure 2). investments were made not as per economic rationality of market but as per political rationality of central authorities and politicians (Kostera and Wicha 1996). availability of slack within SOE has provided enormous opportunities to the organizational members to capitalize it as per their bargaining power (Caves 1990). This orients the SOE towards definition.

Opening of organizational black box is sketched for strategic and structural variables. which was also opened for private organizations along with state-owned organizations either from inception or from a long time in the past. who have been in the business of manufacturing and marketing of tractors. whose ownership is with the state. ownership of the organization changes from 100% state ownership to include majority of its equity either from general public or from some privately owned organizations.
Privatization
It refers to the mode of ownership restructuring. namely with change of ownership and intensity of competition in the industry. Table 1 facilitates for distinction on the basis of mode of restructuring through external mechanism. especially. and switched its business from scooter to three-wheeler in 1990. organization with government ownership will not only act as control group for environmental changes like: technology. Figure 4 illustrates the complete map of SOE restructuring. for fixing the organizational performance. whereby modes of external restructuring are being superimposed on or are being simultaneously operated with internal restructuring of organization by opening the black box. However.
Government Ownership
It refers to organization having majority of its equity. Indian Oil Corporation Limited has gone through the process of opening up of industry. and seen the growth in competitive forces. literature suggests that the effect of industry opening will be more pronounced than that of
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. the same will be high with the change of ownership. They have passed through the process of privatization and opening up of industry. Modern Food Industries Ltd (LOW) (MEDIUM-LOW)
Note: words in bracket () indicate level of changes?
It is expected that the level of changes will be low where ownership is still lying whith the government and industry has already been in the competitive sector for a longer duration. Additionally.
Figure 3: SOE Restructuring with Intricacies on Organizational Dimensions
Existing Competitive Industry
It refers to that industry. namely economic versus socio-political ones or a combination of two. whereby. while maintaining its ownership status with the organizational orientation state.
Figure 4: SOE Restructuring with Intricacies on Performance Measurement and Organizational Details
Ownership Restructuring
It refers to the mode of restructuring. The Punjab Tractors Limited and Modern Food Industries Limited. which decide the corresponding SOE orientation with its environment. Maruti Udyog Limited and Orissa Electricity Board have been in the business of manufacturing and marketing of passenger cars and electric power respectively. As per Table 1. This is also known as liberalization. through privatization along with the opening up of industry for participation of private sectors to operate in. cultural set up and consumer and supplier awareness.Indian Oil CorporationLtd. whereby. Additionally. and confectionary
Table 1: Modes of Privatization
a l ng ern i E x t ructur t Res
Industry Greenfield Privatization
Ownership
Privatized -Maruti Udyog Ltd. forklifts and harvester combines.
Competitiveness
Existing Competitive Industry
Punjab Tractors Ltd.44
Sudeshwar P Singh
items like sliced bread and cakes respectively. remained in competitive industry for long and experienced the change of ownership. On the other side.
three-wheeler in nineties. or through a suitable combination of the two. intensity of competition in (the) industry increases.
Consideration of along with ownership and industry structure in the process of SOE restructuring facilitates complete spectrum. -Orissa State Electricity Board (HIGH) (MEDIUM HIGH) Government . ownership of the organization changes. but also will provide step wise understanding for the relative effect of restructuring as indicated in the adjoining table. Scooters India Limited has seen the growth in competitive forces for scooter in eighties and that for
In the process. and sharpens our learning on orientation and relative emphasis from corporation to environment and vice versa. Scooters India Ltd. owned either by the state or in combination with some other organizations.

Grosse and Yanes 1998). restructuring corporation. either on the basis of inputs core products (Colling and it is expected that organization will observe or on the basis of processes. 1990) (emphasis added). 1997). 1992:219) and also to the habit of absorption of organizational slack by tapping their rent seeking Study conducted and reported by Singh (2004) suggests behavior (Caves. the adaptive share their difficulties and grievances with higher level corporation. level of formalization and standardization. 1983). 1972). supervisory authority. Scooters India Limited has also observed centralization of administrative activities. Similarly. 1983) and latter is branded as administrative process or machine bureaucracy (Mintberg. Accordingly. Additionally.. highly bureaucratic for both the policy and operational each part of the system is dependent on the other. one can get a deeper insight of for through the process of file and paper movements. 190). However. focus. as firm’s standardization. and control of quality by the manufacturing personnel only in lieu of quality control inspectors. Decision Segregating the technical and administrative aspects of making has involved more number of meetings.. which further complicates the Ferner. On the other hand. This invites not only centralization of SOE. On the other side. In both these organizations. Organizational success through restructuring will depend on effectiveness of adaptation on the above mentioned two dimensions. Simultaneously. Additionally. technology. like Punjab Tractors Limited has observed
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. like.
Structural Aspects
Value addition process involves value addition through both the technological processes and transactions across functional boundaries. the influence of centralization-decentralization continuum. and use of business process reengineering by manufacturing personnel. which level issues. and individuals avoid the uncertainty and risk are simultaneously dependent on centrally planned through the use of rules. and the level of organizational innovation will help in understanding the process of successful restructuring. which creates an activities have been attached with the concerned functional environment of intrafirm competition among inputs. reporting difficulties (Punjab Tractors Limited).46
Sudeshwar P Singh
decentralization of technical activities through higher level of specialization. what they can not labor market both for managerial and other staffs (Colling (Singh 2004). Additionally. personnel for maintenance behavior for ‘privately owned market’. unit employee authority and unit collegial (group) authority.
Decentralization
Proposition 2: With the restructuring of SOE. and the need for product and organizational flexibility by Potential for intense use of norms in SOE is due to tall corporation on the other.
isolate itself from socio-political environment to a greater degree. acquire the benefits of learning to a greater degree. On the other side. More specifically. A comparison of activities for (caves. Structural dimensions like degree of centralization. Scooters India Limited has observed decentralization of technical activities through higher level of specialization. it is expected that organization will observe decentralization of technical activities and centralization of administrative activities to a greater degree. rather than value addition process. administrative activities remain the main features of lower level employees at Punjab Tractors Limited could successful SOE restructuring. Hence. 1997:174-175. This involves repositioning the hierarchy with formal accounting through the chain of vested interest groups involved in organizational coalition commands and blurred organizational goals (Martin and (Caves 1990. Due to lack of clarity in output. employees’ involvement through the use of personal initiatives and suggestion schemes. research and performance is measured development and the nature of Proposition 4: With the restructuring of SOE. empowerment of middle managers. Parker. non-technical activities at Scooters India Study conducted and reported by Singh (2003) suggests that Limited have demanded consent of CEO not through the decentralization of technical activities and centralization of process of paper movement but otherwise. gets departments to avoid the organizational inefficiencies and misaligned (Alchian and Demsetz. there has been statistically significant increase in the level of job authority.
Boundaries for centralization-decentralization continuum lie Formalization and Standardization with the hunger for power by centre on one side. individuals are blessed with what leads to the development of unified corporate internal can they do and that in the latter case. and Ferner. This leads the decision-making process to be in the ‘network’ industries with closely integrated activities. This that in the former case. 1992:219) but also increase in the level of innovation and utilize situation. and Private and Public Owned Enterprises suggests activities but also centralization of corporate culture. focus. 1990:156). Former is called as technical core (Mintberg. rulebook is established to locally specific knowledge deal with possible that conveys considerable contingencies and little is left for discretion (Martin and bargaining power within the organizational coalition” Parker. a huge “(e)mployees . it that there has been increase in the level of job and unit also jeopardizes the team production approach. communication process has been personalized in lieu of being formalized through written communication. forces of restructuring along with market forces will be installation of assembly line has further increased the process strong enough to supercede the centralizing forces leading of standardization in technical activities both at Punjab to decentralization of organizational activities and Tractors Limited and Scooters India Limited.

103. 159. the two companies. Thus. The most difficult part was its costing system. Installation and operation of its own tool room facilities for manufacturing of tools. workers’ union joined hands with officers and fought a pitched battle against the management and government. However. the development of fuel-efficient technology for motor cycles and expansion of moped manufacturing capacity reduced the gap between demand and supply of scooters by substituting scooters with motor cycles or mopeds.92 million for a sale of Rs.5 million and the actual expenditure incurred was Rs. it has developed and manufactured a tractor model Swaraj939. Due to large gap between demand and supply of scooters. jigs and fixtures before setting up of plant. Rs. know-how and also the commercial proprietary right to manufacture 3 wheelers in 1973-75 from Innocenti. The company also lacked the back up for technical support and know how. Thus. where ever was possible and feasible. Kumar and Srivastava 2001. Out of Rs. PTL remained an adaptive corporation and change of ownership did not influence the organizational functioning and performance. the process of automation faced severe constraints in due course of time. It was incorporated by the Government of India in 1972 with old plant and machinery from Innocenti (Italy) having manufacturing capacity of 500. Arun Sahay in early 1990 to wind up the company.000 scooters. a private sector company. Either due to fault of building designer or due to decisions of founder CEO. and replaced the foundation work by ‘open-web-portal-frame’ structure and ‘membrane RCC walls’ were bolted on to structural foundations once factory land faced the problem of bearing capacity (Singh 2004). It developed the technology for tractor at CMERI Durgapur. Annual Reports) Meantime. which were common for production of other products. PTL remained a learning and innovative organization. like Vinay moped. and could not integrate its activities with the existing business. three wheelers and fans. which failed in the market. Subsequently. and extensive use of employees’ involvement and initiatives through adoption of suggestion scheme (Singh 2004). the practice of “delegation of responsibility and authority”. and accordingly Juran’s quality improvement program was practiced to embed the quality with the product. 35 million became a waste besides the loss of time. and SIL was unable to recover its cost from the manufacturing and selling of product. 109 million with Innocenti’s old plant and machinery became a sanctioned amount of Rs. It kept on adding products. Even the
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. which could not be commercialized and whole investment of Rs. government appointed a new CEO. foundry and paint shops besides buying certain machines from HMT to overcome the supply related problems and also to fulfill the complete machining requirements. which meets environmental requirements to be expected in 2005. energy. as Innocenti had not only sold some portion of its plant before coming in contact and/or during negotiations with the Government of India but also could not release some facilities. it modified and introduced other models and products. either against cash payment or against advance payment. SIL had to establish its own forging.
Appendix II
Scooters India Limited
Scooters India Limited (SIL) is basically an engineering company and has primarily been in the business of manufacturing and marketing of scooters. However. Additionally. as a step in organizational and business restructuring. the corporation acquired facilities. Market crash in 1982 was used to diagnose the reasons for market failure. 134. Additionally. redesign of automatic depth-cum-control hydraulic lever right in the beginning. the facilities bought from Innocenti were not fully balanced. SIL came out from the business of two wheelers and fans in 1990 and 1997 respectively. Meanwhile. which not only increased transportation and inventory carrying costs but also added administrative complexities.50
Sudeshwar P Singh
geographical location of SIL put further constraints on its functioning. Dr. designed and fabricated a missing electronic component in heat treatment equipment supplied by East German manufacturer. the Government of India felt that SIL would not be able to turn around. who refused to do so and presented a plan for the organizational revival.9 million was incurred on unapproved power pack project. Bajaj Auto and LML became the strong competitors for scooters’ business in 1980s. Its major strength was licensed capacity for manufacturing and also issuing permissions for setting up of scooter assembling unit in other states. It acquired Delhi fan unit of Ganesh Mills.8 million as against a sum of Rs. as 70% of components were procured from distant places. SIL switched its business completely from two wheelers to three wheelers and regained the confidence of bankers and suppliers by middle of 1990s. during 1987 and 1999. In the meantime. and tried to sell the organization to the private parties but failed to do so. the project cost of Rs. it was caught up in the loop of perennial losses and incurred a loss of Rs.18 million in only one financial year 1989-90. Italy for manufacturing of scooters. SIL got covered under BIFR (Board for Industrial and Financial Reconstruction) in 1992. (Kumar and Sahay 1996. As a result. by mid 1980s. In the year 2003.1 million in case of new plant from Piaggio. Additionally. 30. 428. SIL introduced its first product called ‘Vijai Deluxe’ scooter. and launching of Swaraj735 in the very second year of commencement of production remained some of the important episodes for the use of innovation and learning. SIL maintained its monopolistic position from 1970s till early 1980s besides Bajaj Auto Limited.8 million. not only the monopoly power of SIL checked due to intense
performed on shop floor by workers in lieu of the jobs of quality control inspectors. Finally. By mid eighties. 194. and the “delegation of power as the main approaches to retain the manpower” (Singh 2004:180). However. The process of restructuring started with the referral to BIFR and around 850 employees took voluntary retirement in the later part of 1993 and early part of 1994. LML Kanpur was established with newer technology from Piaggio. This led PTL to sell its tractors. and opportunities. in early 1980s. die casting. 194. Lastly. (Kumar and Sahay 1996) In 1975.

flexibility should be enhanced? 2.
Key questions reflecting the applicability in real life:
1. He had worked for 10 years in industry mainly in IT area both in consulting and conventional organizations up to senior management level. PGDM (MBA) (Marketing) from XLRI Jamshedpur. and Ph D (Organization and Strategy) from IIT Kanpur. His research interest includes organizational orientation. Try to map your own organization on following continua (Please tick mark in the appropriate box(es)) Ownership State Orientation Socio-Political Industry Structure Competitive Restructuring Internal Restructuring Centralization Decentralization External Monopoly Economic Private
3. M Tech (Applied Mechanics) from IIT Delhi. Delhi. 2. Identify and describe the types of flexibilities that are relevant for your own organizational context? On which dimensions. He obtained the B Sc Engg (Mechanical Engineering) from NIT Jamshedpur.52
Sudeshwar P Singh
Flexibility Mapping : Practitioner's Perspective
1. What types of flexibilities you see in the practical situation of “Ownership Restructuring and Competition” on the following points: Flexibility in terms of “options” Flexibility in terms of “change mechanisms” Flexibility in terms of “freedom of choice” to participating actors.
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. which can help you in focusing organizational orientation and also in achieving organizational effectiveness?
Sudeshwar P Singh is Associate Professor in Competition and Strategy at Lal Bahadur Shastri Institute of Management. Develop a SAP-LAP (Situation Actor Process-Learning Action performance) model of "Ownership Restructuring and Competition" relevant to your organization. How are the objectives of your organization oriented in terms of socio-political and economic spectrum? How will you utilize the findings of this study to focus them? What is the level of centralization. survival and sustainability. formalization and standardization in your organization? Can you redesign the organizational processes involving above-mentioned parameters.

been obtained by adding up capital. and its two subperiods: the first half (1992-1996) and the second half (1996-2000).1 7. if any.00 1.98 5.7 6.7 4.9 4.9 10. when null hypothesis of no difference between more than two groups is rejected (Note 3).24 8. Besides. an annual publication of the Reserve Bank of India (RBI) – the central bank of India.5 8.36 9.3 2.9 2.54
V. Ownership State Bank Nationalized Private Foreign B. Further.7 3. In addition. and general – are retained earnings or undistributed profits. servicing of capital and issues in capital adequacy.4 5.4 4. which are distinguished from ‘provisions’ made to provide for known liabilities and reduction in the value of certain assets. The analysis of variance (ANOVA) technique has owned funds been used for the purpose.1 8. it overall sample.2 10. This make any profits at all.3 6. reported under Schedule 1.9 3. it is known as the ‘core capital’. It is followed by Bonferroni posthoc test procedure for multiple pair-wise comparisons.
Next. specific.85 6.0 6.04 0. Thus.8 2.1 5.5 4.7 5.9 6. K.7 3. financial theory suggests an optimal mix of equity and debt (borrowed funds) that maximizes the wealth of shareholders.0 6.6 4.8 7. extensive use has been made of Performance Highlights of Banks.00 + + + + 13 28 14 55 0. 1992-2000
Figures are in percentages 1992 1993 Bank group A. This detects statistically significant differences. This depends on taxes. To the extent equity funds act as a cushion against unexpected losses.0 3.0 6. These are networth to total assets ratio. ‘adjustment period’ to government.8 5.” Source : Banking Commission (1972: 296) reserves and surplus.07 6.10 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 1992 2000 Average Sub-periodI Sub-period II 1992-1996 1996-2000 Subperiod change Number of banks with + trend Pairedt -test probability
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.35 10.12 6.4 9.4 4.7 5.7 9.3 9. As recognizes/ assumes return on this investment would be expected by the noted above networth that banks required an comprises of capital.24 7.5 2.8 9.5 5. reorganize/ reorient Thus.16 0.9 5.0 6. and reserves and surplus.
Management of Owned Funds
Owned funds or networth constitute the share capital contributed by the owners (equity shareholders) and reserves.7 5. In particular there is a substantial is not reported in annual approach explicitly investment of public funds in these banks and a reasonable accounts per se.3 6. for the eight-year period and its two made for investment in shares as the focus is not on net halves. Jain
tables relating to banks. Size Large Medium Small Total 2. all ratios have been tested for interaccumulated losses.92 4.0 5.9 4. during 1992-2000. reported under Schedule 2 of To explore the relationship between the nature of the annual accounts.5 5. a regular publication of the RBI.81 9.00 0.
A perusal of relevant data contained in Table 1 shows that each unit of owned funds supported nearly 18 units of total assets.5 6. and Report on Trend and Progress of Banking in India. published by the Indian Banks Association.96 9.01 0.2 6. and information asymmetry (Note 4). we have examined three aspects related to management of owned funds.00 0. no adjustment has been group differences. The analysis makes use of financial ratios with total assets as the base for various liability groups. its values have their operations and strategies in the new environment.6 5. each ratio for the two sub-periods have been compared and tested for statistically significant differences by using ‘paired tNetworth test’ method (Note 2).2 5.00 0.59 4.66 3.57 7. bankruptcy costs.1 11.63 + + + + 8 11 19 17 0.71 6.86 5.5 8.1 5.5 10. “It is an accepted principle that these banks are not to run The procedure is Networth has been applied to various solely or even mainly with the object of making maximum analyzed with respect to sub-groups. This relationship is an outcome of the requirement that commercial banks shall
Table 1: Net worth to Total Assets Ratio for the Sample Banks. and the profits. However. Reserves – statutory. its excessive use lowers the return on equity. Gupta and P.1 7. this does not mean that they are not to total assets.08 4.4 4. From the perspective of financial management. average ratios have been computed for the eight year period of the study (1992-2000).4 7.6 5. However. The value of networth is gross of bank and profitability.0 4.54 5. However.40 4.03 2.8 6.5 10.3 8.4 4.32 5.3 4.8 3. All financial ratios have been tracked over the eight-year period to discern the overall trend for 68 banks in the sample vis-àvis their sub-groups based on ownership pattern and size.0 5.20 6.2 10.

While Exhibit 1 shows constituents of Tier I capital. Jain
The direction and magnitude of sub-period change for foreign banks indicates massive infusion of fresh share capital by them. The information on capital adequacy is available in such a format that positional averages. headed by M. ‘box-plots’ (Kinnear and Gray. 1996-97. which are a principal source of fee-based income for banks. Accordingly. Narasimham. This may be ascribed to the suggestion by The committee on Banking Sector Reforms (1998. 1999:97-99) has been used to show the comparative position of various groups.
Exhibit 3: Capital Adequacy Ratio of Sample Banks by Ownership Structure. and to 10 per cent by the end of March 2002. + + + General provisions and loss reserves Hybrid debt capital instruments Subordinated debt
Tier II capital
Source: Based on Reserve Bank of India. Basle Capital Accord has defined capital in two tiers: Tier I and Tier II. 1996-97
Tier I (core capital)
Exhibit 2: Components of Tier II Capital
Cumulative perpetual preference shares + + Undisclosed reserves Revaluation reserves
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. Tier II of capital contains elements that are less permanent in nature or are less readily available. This is explained by heavy losses incurred by them. para 3. if any Book value of intangible assets Equity investment in subsidiaries
Exhibit 5: Capital Adequacy Ratio of Sample Banks by Size. for phased increase in capital adequacy ratio from 8 percent to 9 per cent by March-end 2000. Nevertheless.
Issues in Capital Adequacy
It is significant to note at the outset that capital is not a single item in determining capital adequacy. The principal advantage of risk-based capital standards is that it permits inclusion of off-balance sheet items like guarantees. Tier I capital (also known as core capital) provides that most permanent and readily available support to a bank against unexpected losses. Report on trend and progress of banking in India. The very low ratio for nationalized banks is due to poor profitability of their operations in the past. 1996-97
Exhibit 4: Capital Adequacy Ratio of Sample Banks by Ownership Structure. components of Tier II capital are listed in Exhibit 2. Yeager and Seitz (1989:256-57) observe that it ignores the portfolio diversification effect. Gupta and P.56
V. 1999-2000
Exhibit 1: Components of Tier I Capital
Paid up capital + + + + Statutory reserves Disclosed free reserves Balance in share premium account Capital reserves from sale (not revaluation) of assets Accumulated losses. It is evident from Exhibits 3 to 6 that median values have increased for all the groups and there is less variability in values. K. some banks have low and in fact even negative capital adequacy ratio.15). Nevertheless. Besides. it treats each asset in isolation of the liability that was used to finance. namely median and mode are more suitable. p. 119.

8 63.8 76. The following discussion covers the composition of deposits.7 55.7 61. during the second half of the study.7 62. the direction of causal relationship Apparently.4 62.6 per cent (1992-96) to 63.9 62. The overall trend is steady increase in all years except 1995-96.9 64.0 75. the rate increases with the term.5 80.3 61.4 66.0 67.2 61.6 62.7 80.3 56.4 59. Usually.7 73. This explains sharp increase in their interest cost and shrinking spread margin. The
Term Deposits
Term deposits as the name suggests are deposits placed with
Table 4: Term Deposits to Total Deposits Ratio for the Sample Banks.4 + + + + 11 27 12 50 0.40 0.1 72. It issued global depository receipts (GDRs) in 1996-97.9 55.1 73. constitute three distinct groups risk (not renewed on maturity). This underscores the ability of a large section of the sample banks to supply bank credit at competitive terms.97 (Note 7). among domestic banks.8 55. Apparently. Gupta and P.3 79.01 54. two prominent features of foreign banks are the lowest ratio and negative sign for sub-period change.2 77.0 63. has the minimum ratio.7 67.0 61.1 62.0 75. savings bank deposits of salaried class maintained with them are an attractive source of funds for them.80 0.1 74. Foreign banks constitute the only group for which subperiod change is negative.8 73.9 78.6 61.5 74.7 69.4 66.0 73. The relationship between the term of deposit and interest payable is determined by ‘the term structure of interest rates’. Fixed deposits constitute the bulk of deposits of the sample banks (Table 4). its share of rupees 10 was issued at a premium of rupees 233 (Note 6).5 63.2 61.58
V. a part of low-interest bearing savings deposit between deposits and bank credit is from credit to deposits and non-interest bearing and borrowings. This may be conclusion is use of in the new environment.4 57. aggregate deposits of the banking sector (not sample banks) grew faster (17 per cent per annum) than bank credit (15.4 62. Other notable findings are: implication is that they have dominance of term deposits Foreign banks followed by private banks and public sector in their deposit portfolio.1 78.4 68.4 75.1 58.2 64.00 0.6 62.04 0.8 67.1 62. Their share in the total deposits has marginally increased from 61.5 64.2 80. The obvious to reorganize/ reorient their operations and strategies deposits. An important aspect of deposit management is composition of deposits. i.7 63. and create adverse ‘gap’ in (Annexure I).5 61.9 61. In fact.0 78. K.9 64. in that order.3 73. Another plausible . a falling interest rate scenario. Apparently.0 61. ascribed to a set of two purchased funds to fund factors: general decrease in credit granted by them.2 61. the State Bank group has lower ratio of term deposits to total deposits. the minimum duration being 15 days.6 66.4 76.1 79. It is interesting to note that State Bank group. spurred by growing competition.5 80. Ownership State Bank Nationalized Private Foreign B.3 60. aggressive liability management interest rate since late 1996 and stock market crisis of 1995 in the narrow sense of the word.. relatively low share of term deposits is consistent with nature and scale of their operations.
deposits. still they attach nearly threefourths weight to term deposits in their deposit portfolio.6 61.00 0.5 65. indulged in aggressive selling of term deposits to secure rapid growth.3 + + + 7 14 20 9 0.2 64.6 69.20 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 1992 2000 Sub-period I 1992-1996 Sub-period II 1996-2000 Subperiod change Number of banks with +trend Pairedt-test probability
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. Besides. Size Large Medium Small Total 61.
Inter se bank groups. This is consistent with the general trend for the banking system since 1994-95.8 60. Inter-se public sector banks.4 56. The demand deposits have been volatility in the ratio further It assumes that banks required an ‘adjustment period’ converted into term confirms this.5 62.8 64.3 63. Such deposits carry the liquidity banks. Hence. Jain
banks for a pre-determined term.3 63.8 per cent per annum).4 per cent (1996-2000). The terms of maturity have been standardized.6 60. 1992-2000
Figures are in percentages Average Bank group 1992 1993 A.1 60.4 72.1 71. these are known as fixed deposits.e. For public sector banks.9 57.9 64. the State Bank of India – the leader of the group – has international reach and operations.3 59. which is accounted for half of the sample banks. This highlights the access of the group to alternative sources of funds.09 0.9 78.1 74.4 66. there is a marginal increase in the ratio between the two sub-periods. and major issues emerging out of it. It may be noted here that. Private banks.7 63. Popularly.

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